Verizon, Sprint fined nearly $160mn for imposing unauthorized charges

Telephone giants Verizon and Sprint will pay almost $160 million in fines from the US government for imposing unauthorized charges on its customers. The two companies agreed to settle the matter in the wake of federal investigations.

The settlement with Sprint and Verizon follows a lawsuit filed by
the Consumer Financial Protection Bureau (CFPB) in New York
federal court, which charged the telecommunications companies for
processing charges for third parties, and for violating the
Dodd-Frank Wall Street Reform and Consumer Protection Act’s
prohibition of unfair practices.

Specifically, the government argued the companies allowed third
parties to illegally charge people through their billing system,
through a practice called “cramming,” and then profiting
from the charges by as much as 35 percent, behavior which
victimized millions of people

“Sprint and Verizon had flawed
billing systems that allowed merchants to add unauthorized
charges to wireless customer bills,” said CFPB Director Richard
Cordrayin a
statement.
“Consumers bore the
brunt of those charges and ended up paying millions of dollars
while the companies reaped profits. Today’s actions will put $120
million back into the pockets of harmed consumers and require
these companies to improve their billing practices going
forward.”

The total fine comes to
$158 million – Verizon will pay $90 million while Sprint will pay
out $68 million – and includes additional fines of $38 million in
federal and state charges. Most of the fines will go towards
refunds to customers. The companies also agreed to provide better
oversight of third-party billing.

The theft occurred when people were targeted online through ads
that, once clicked on, brought them to websites asking for their
cellphone numbers. Merchants then tricked people into providing
their numbers to get “free” digital content only to be
charged for it later, the bureau said. In other instances, the
merchants fabricated charges without delivering any goods or
communication with consumers.

“The monthly charge for these
third-party premium text messaging services ranged from $0.99 to
$14.00, but typically were $9.99 per month. Verizon retained 30
percent or more of each third-party charge that it billed, while
Sprint received approximately 35 percent of collected revenues
for each of its third-party charges,”saidthe Federal
Communications Commission in a statement.

Both Sprint and Verizon
use third-party billing companies, neither of which required
customers to opt into third-party billing. Instead, people were
automatically enrolled without their consent. Customers were
unware that third parties could place charges on their bills, and
despite the companies offering them third-party protection, they
made no use of it because they weren’t aware of the
practice.

The CFPB said the
telecomm companies ignored customer complaints, didn’t bother to
track the complaints and failed to provide refunds to
consumers.

The companies received up to a 35 percent cut of the gross
revenue from these charges, which were incurred from about 2004
through 2013, the CFPB said.

"Well before any government action, Verizon Wireless stopped
allowing companies to place charges for premium text message
services on customers' bills," Verizon spokeswoman Debra
Lewis said in a statement released to CBS. "Customers who believe
they were billed improperly for these services may seek a
refund."

The lawsuit was filed in the Southern District of New York in
December 2014. On Tuesday, CFPB filed a new complaint as well as
a proposed settlement in the District of New Jersey to address
Verizon’s unlawful conduct of “cramming.”

There have also been similar telecom settlements in New York.
AT&T in October of 2014 settled similar allegations for $105
million and T-Mobile, in December 2014, settled for $90 million